Economies around the globe are under extreme monetary and inflationary pressures, and in the United States, the Federal Reserve is aggressively managing monetary policy to curb inflation. Attempting to predict the economy’s impact on consumer financial well-being is an imprecise science at best, but right now it’s safe to assume that consumer defaults are likely going to rise.

Right now, consumer defaults1 are at a 30-year low2, and this is counter to every default forecast made at the start of the COVID-19 pandemic. In the 7 years prior to the Great Recession, consumer defaults averaged 3.55%, and, in the last 4 quarters3 of Fed-reported default performance, the consumer default average was at a 30-year low of 1.55%.

Financial institutions are living in a time of economic instability and uncertainty. The recession of 2020 should not have yielded the lowest consumer delinquency in 30 years. Are the instability and recessionary pressures of today a precursor to a doubling or tripling of consumer default? Default management teams must ensure that their technology platforms can adapt rapidly to manage the risk of this uncertainty, while also meeting the changing consumer behavior.

CGI’s default management solution team has partnered with clients, industry experts and thought leaders to deliver an operational platform that provides the foundation and infrastructure with collections capabilities to meet the default industry’s requirements for technological transformation.

Our team focuses on bringing true cloud-native architecture to default management. We monitor the market and work with clients to stay in front of change using research such as CGI’s Voice of Our Clients, and working with experts in the industry, such as Bridgeforce.4 

The market is an honest critic

The banking world continues to face the challenges of economic headwinds and legacy technology platforms that don’t support cloud-native capabilities or modular design, as well as increasing customer demand for faster, more personalized and accessible services. These challenges create intense pressure to transform operations through digitization, but leave banks struggling to keep pace. With this transformation comes a significant opportunity for companies to leverage next-generation technology that enables smart, easy, secure, and seamless digital interactions.

Advancements in technology have resulted in a shift in platform capabilities and service expectations. For example, the integration of data analytics, machine learning (ML), and artificial intelligence (AI) is reshaping and redefining what is possible in banking by empowering companies to understand and predict customer behavior, and dynamically create strategies that personalize each customer’s experience to their unique situation and needs.

Forward-looking companies have begun to rethink and reprioritize their operational business practices, systems, and services. Undoubtedly, transitioning to new digitally-driven platforms will be critical for enabling financial institutions, and their customers and employees, to become more agile, resilient, and customer-centric—providing a key competitive edge.

CGI recognizes the urgent need for companies to better position themselves to stay relevant in today’s quickly changing market—addressing current challenges while delivering on evolving demands. We have re-imagined debt relief and recovery with CACS X for collections, a software-as-a-service (SaaS) offering available in our cloud-native credit platform, CGI Credit Studio. CGI Credit Studio uses the latest technology integration tools, advanced analytics, intelligent automation, and ML. Aligning operational objectives with the future of default management, the platform is designed to enable continuous change without adding overhead and complexity.

CACS X, in particular, is at the forefront of default transformation, offering a real-time, event-based, and cloud-native solution to help financial institutions address the challenges of legacy IT and capitalize on the promise of digital transformation. CACS X paves the way for fast, cost-efficient and successful default management in these uncertain economic times.

Embrace the new reality

The collections industry has been awash with the word “digital” for years but, for most financial institutions, it is little more than an outbound channel used to trigger a human conversation. Given that we believe the future is more about engagement than it is segmenting delinquent or charged-off inventory, the core system used to manage that inventory should be designed to enable true digitization. With this in mind, CACS X on the new platform delivers the following technology capabilities that make true digital engagement possible:

  • Virtual agents provide a no-limits, scalable workforce and for basic call management tasks, they can interact with customers the same way a live agent would. They drive ubiquitous engagement across every channel to ensure consistent and fully auditable recovery practices. They reduce the need for human interaction and associated costs, providing customers the ability to self-serve at any hour of the day.
  • Event-driven collections is based on the concept, matured in digital marketing, that a modern platform should be able to detect and act whenever a customer engagement/interaction occurs. Real-time triggers for the next best action and response acuity enable traditional default shops to interact meaningfully and in a timely way—connecting with customers at the right time and providing the appropriate communication.

Turn the migration mountain into a molehill

Maintaining software on large, complex, and monolithic platforms requires significant funds, planning, and coordination. It is time for that to end. Cloud maturity is changing the way banks approach technology transformation, providing the capabilities to make software implementations, platform maintenance, and system migrations quick and easy with faster time-to-value, as noted in Bridgeforce’s article, Disrupt and Transform: Modular Collections.

With traditional implementations, changes to specific functions affect the entire system, and traditional portfolio migrations require specialty configurations to be completed before that portfolio can go live. However, cloud-native microservices offer scalability and resiliency, unlike traditional monolithic implementations, by enabling the rapid development and deployment of new modular services. With the cloud, subsets of functionality are independent of the platform, making changes faster and easier.

In other words, a cloud-native platform such as CGI Credit Studio supports a modular-enabled approach, whereby modules are built as standalone elements that function on top of the cloud operating system. Companies can migrate business functions, not portfolios, seamlessly (e.g., migrate bankruptcy functions only for all portfolios as a start). This shortens the delivery cycle by orchestrating the end-to-end migration in bite-sized pieces (bankruptcy, deceased, 30-day, SCRA, 60-day, repo, 90-day, etc.) while minimizing project risk, costs, and resource burn by working on discrete iterations rather than massive Waterfall delivery.

Further, a cloud-native platform enables continuous delivery with the ability to release small, incremental changes as external conditions or internal needs materialize, helping companies to pivot their business priorities quickly. Cloud-native platforms also increase agility and flexibility, supporting the introduction of new tools, whether starting fresh or migrating from legacy applications.

Leverage actionable intelligence

The vast majority of collections shops update a debtor’s status and financial activity on a nightly, end-of-day batch cycle, which means this information is evaluated once at the end of the day to provide the intelligence required to determine the next action to take for that debtor. By that time, the intelligence used to determine the most appropriate action is stale. However,

CGI has designed our platform’s microservices to provide real-time intelligence that is far more impactful when trying to resolve the cause of a customer’s financial hardship.

Moving forward, there’s an increased focus on hyper-personalization, which requires an “always-on” information pipeline. CACS X, for example, incorporates insights from event-driven workflows (related to models, scores, and associated elements used to calibrate risk), which are updated in real-time and provide timely and relevant details on the debtor’s account.

Progression in ML, supplemented with natural language understanding (NLU) and natural language recognition (NLR), will help to refine and optimize each customer interaction to drive the highest outcome yield. Overall, the outcome is real-time, value-driven intelligence for recommending the next best action and reducing defaults.

The future of default management is here

CGI set out with the goal of disrupting the default management industry by completely rethinking and redefining our default management solution. Yes, there is new and exciting functionality like virtual agents and real-time, event-driven orchestration, but underneath lies so much more that is impactful to the business.

Today, across the industry, we estimate that less than 10% of all core collection and recovery platforms are on the most current version of software. This may be attributed to incentive models used for collections professionals, as well as limited resources and dollars available to work on major migration projects that take years to complete but generate only a modest performance improvement.

However, the limitations of legacy platforms should no longer hold companies back. New cloud-native platforms unlock the power of emerging technologies by providing digital interfaces necessary for true digital collections. They enable companies to integrate intelligence and automation into processes and customer interactions to create a cohesive digital experience. Thus, the opportunity to implement a modern default management approach is now.

CACS X delivers the future of default management. Our re-imagined solution is designed to help financial institutions reduce operating expenses, delinquencies, and write-offs while building profitable customer relationships and improving end-to-end collections and recovery operations.

Companies that capitalize on the promise of digital transformation will become more agile, resilient and customer-centric—positioning themselves for a sustainable competitive edge. To learn more about how CGI can help your financial institution stay ahead with next-generation default management capabilities, visit our retail banking and consumer finance section or connect with me.

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1 Delinquent loans are those past due 30 days or more and still accruing interest, as well as those in nonaccrual status.

2 Board of the Governors of the Federal Reserve, “Delinquency Rates 100 Largest Banks, SA”

3 Performance reported from 2021 Q2 to 2022 Q1

4 Bridgeforce, Disrupt and Transform: Modular Collections